Inflation in Transatlantic Region Driven by Quantitative Easing to Save the Banks

In the European Union, inflation continues to rise rapidly, reaching an average rate of 7.5% in March on an annualized basis (9.8% in Spain, 7.3% in Germany, 7.2% in Italy, 4.5% in France). ING bank’s The chief Eurozone economist of ING bank, Carsten Brzeski, among others, forecast double-digit inflation for Germany this year.

Indeed, all the giant food store chains, like Aldi, Rewe, Edeka, announced another round of drastic price increases starting this week. A poll commissioned by the Postbank before the latest price increases showed that one every seven citizens (15.2%) even then could hardly meet their living costs. In Great Britain, experts fear that 1.3 million people will slip into poverty, mainly as a result of the huge price increase of 54% on gas and electricity as of April 1. And we could report similar examples from all other European countries.

However, it is totally unacceptable that governments blame the conflict in Ukraine for the energy, commodity and food price increases, when they are the result of decades of the central banks’ monetary policy, which has provided trillions of euros free-of-charge for speculation on energy and commodities.

The latest data published by the Federal Reserve offer an insight into how massive such a monetary inflation driver has been. In Q1 2020, the U.S. Federal Reserve provided international banks with $28.6 trillion in term-adjusted cumulative loans under its repo program. Of that sum, the trading units of just six global banks received $17.66 trillion, according to wallstreetonparade.

The Fed had been forced to intervene and replace the repo market, the market through which banks lend overnight money to each other, in September 2019, when the market suddenly froze, driving interest rates to the ceiling (cf. SAS 10/20, ).

The largest borrower in Q1, 2020 was a European bank, BNP Paribas, through its subsidiary BNP Paribas Securities, with a cumulative $3.84 trillion followed by JP Morgan Securities ($3.6 trillion); Goldman Sachs $2.85 trillion; Nomura Securities $2.7 trillion; Citigroup Global Market $2.67 trillion; and Barclays Capital $2 trillion.

What might have compelled those banks to scramble for money? Financial derivatives, bets that went wrong or were threatening to go wrong. Thanks to the Fed bailout, those banks could roll over their bets, including futures on commodities, whose price started to rise as soon as the global economy recovered from the effects of the pandemic. The renewed demand was just the pretext for massive speculation, fed by the enormous liquidity at zero costs provided by central banks. As of mid March 2022, total balance sheets of the Fed, the ECB and the Bank of England had reached the figure of 25 trillion dollars!